Watch out for defensive deals as market slides: Anand Rathi

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Watch out for defensive deals as market slides: Anand Rathi

In an interview with CNBC-TV18, Devang Mehta, vice president and Head- Equity Sales at Anand Rathi Financial Services, advised that investors with long-term horizon can go long in defensive stocks.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

The market is witnessed heavy selling pressure on Monday over speculations that India and Mauritius may review the double tax avoidance treaty and thus impose tax on capital gains routed through the island. Overseas investors spooked as over 40% foreign direct investment (FDI) flows in India originate from Mauritius. "Although pessimism is the best environment to take positions in quality stocks, one should wait for some downside to buy in Indian equities," said Devang Mehta, vice president and Head- Equity Sales at Anand Rathi Financial Services.

However, he advised that investors with long-term horizon can go long in defensive stocks that are likley to participate in India's growth story when investment cycle witnesses a tunaround.

Below is the verbatim transcript of his interview with CNBC-TV18's Anuj Singhal and Latha Venkatesh. Also watch the accompanying video. 

Q: The Nifty is at 5,300 levels, do you think the panic could take it even further down, or, market should stabilise at least now and see some rally from here on?

A: It has been a difficult time for the market. In the last one week, the tapering of US economy, followed by the reappearance of European debt woes, Chinese inflationary situation, and also the Indian inflation and interest rate ticking scenario have acted as negative triggers. For now, the investor sentiment is downbeat. Although pessimism is a best time to start accumulating good quality stocks, but wait for some more downside and clarity to emerges from the reform front also.

Q: The market had similar fundamentals even some time back. For instance, we had ugly inflation number at 9%, which everyone expected would be 8.5%, most of last week. This was followed by credit policy and the rate hike as expected and RBI's fairly hawkish statement. The Chinese inflation number and their increase in reserve requirements also happened last week. So, the bunch of bad news that the market is reeling under was known to us and the fresh supposed bad news has been corrected or clarified by government authorities. Now, would you advice your investors to buy or do you think this market is nervous for other reasons?

A: There could be two sets of investors, or rather traders. Traders need to follow strict stop-losses at this point of time because markets have become very volatile. However, investors with long-term horizon could use this as a good opportunity to start accumulating quality stocks. In terms of quality, I mean defensive stocks and stocks which could participate when India's long-term growth story and investment cycle starts. Hence, one has to be very stock specific at this point of time rather than following Nifty blindly.

Also read: Pledged shares sell off, more pain in the offing?

Q: On intra week basis, do you think the market will be able to shrug off the supposed news which has been clarified and get back above the 5,340 level? Or Nifty will plunge that support level and start trading in a different lower range altogether?

A: Fundamentally, I would say 5,100-5,200 is a good level because valuations get cheaper at this point of time and one can enter around those levels.

Q: Talking about ADAG stocks and Reliance Infra is particular, there are speculations of an index change and purely on the back of this news, Reliance Infra is seeing aggressive and it's down about 6%. Also other stocks of the same group like Reliance Capital, RelPower have registered notable declines. Would you say that in stocks at least where there is no negative news it would be a good time to maybe buy a bit, or would you stay out of the group?

A: There has been a lot of negativity surrounding these stocks for long. Since Reliance Communications has its own set of problems, we know that Reliance Power's execution is slow and the projects would come in 2014. So, Reliance Infra looks good as it is trading below its book value and lot of other businesses are attractive.

 Hence, one needs to start accumulating Reliance Infra ; however, I wouldn't be a great fan of Reliance Communications which has its huge debt issues at this point of time.

Q: We had seen a bit of a midcap outperformance for sometime now; would any of these stocks in today's panic be a time to buy or would you say a precisely these would be the stocks you would watch out and selloff when you get the next opportunity, stocks like Alok Industries even for that matter S Kumars, we saw good buying coming into these stocks. Raymond, the whole host of textile stocks saw fairly good days. Would this be the opportunity to buy them?

A: The outlook for textile has changed a lot. The export figures have been good, and also realisations are improving for a lot of companies and debt is also coming down. Hence, we like Arvind, Alok , Raymond and Bombay Dyeing . All these stocks can be a good buying candidates on decent fall.

Q: What about Bajaj Hindusthan ? Today, it fell on expectations or on fears of investigation because of price fixing. But, it seems to be the one stock that's targeted in sugar pack. Would you prefer buying?

A: No. We would like to stay away from cyclical stocks including metals at this point of time. Similarly, sugar counters on the back of global volatility and their high beta movement pattern should be avoided. One should opt for defensive stocks like Coal India or Sun Pharma, which are entering the Sensex. Eventually, Coal India would also move into Nifty at some point of time but these stocks look good from current point of view.

Q: Apart from Coal India and Sun Pharma, any stocks which you would advice at this point in time since we have seen quite a bit of correction in the market?

A: If one wants to play strength then IRB Infra and  IL&FS Transportation in the infrastructure space look good though they maybe little high beta but probably the valuations are attractive. One could make decent amount of money if one is invested in these stocks.